Working Paper: CEPR ID: DP9533
Authors: Rui Albuquerque; Yrj Koskinen; Chendi Zhang
Abstract: This paper presents an industry equilibrium model where firms have a choice to engage in corporate social responsibility (CSR) activities. We model CSR activities as a product differentiation strategy allowing firms to benefit from higher profit margins. The model predicts that CSR decreases systematic risk and increases firm value and that these effects are stronger for firms with high product differentiation. We find supporting evidence for our predictions. We address a potential endogeneity problem by instrumenting CSR using data on the political affiliation of the firm's home state.
Keywords: Corporate Social Responsibility; Product Differentiation; Systematic Risk; Beta; Firm Value; Industry Equilibrium
JEL Codes: D43; G12; G32; L13; M14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CSR activities (M14) | systematic risk (G12) |
| CSR activities (M14) | firm value (G32) |
| CSR activities (M14) | Tobin's Q (G19) |